On May 18, 2016, President Obama announced that the U.S. Department of Labor (DOL) published its “Final Rule” updating overtime regulations and more than doubling the salary threshold necessary to meet the requirements of the white collar overtime exemption under the Fair Labor Standards Act (FLSA). The Final Rule will become effective December 1, 2016 and, reportedly, will automatically increase overtime protection to more than four million workers within the first year of implementation.
Final Rule Raises Salary Threshold to Qualify for Certain “White Collar” Exemptions
The FLSA requires that covered employees receive a minimum wage and also overtime pay for hours worked over 40 hours in a work week. However, the FLSA provides a number of exemptions from these requirements, including exemptions for certain executive, administrative, professional, computer, and highly-compensated employees (the so-called “White Collar Exemptions”). The Final Rule doubles the minimum salary level needed for employees to qualify for these white collar exemptions, from $455 per week to $913 per week. Specifically, the DOL rule sets the standard salary level at the 40th percentile earnings of full-time salaried workers in the lowest wage Census Region, currently the South, at $913 per week or $47,476 annually for a full year worked.
Final Rule Sets the Requirement for Highly Compensated Employees
The overtime rule also increases the compensation level needed to satisfy the “highly-compensated employee” exemption—an exemption available for employees who meet some but not all of the requirements of the executive, administrative, or professional exemptions—from $100,000 to $134,004 per year. This amount equals the annual equivalent of the 90th percentile of full-time salaried workers nationally.
The Duties Test
In general, to be exempt from overtime, employees must exercise discretion and independent judgment on matters of importance (the “Duties Test”). The final DOL rule does not make any changes to the “duties test” that also must be satisfied in order to qualify for the White Collar Exemptions. Therefore, an employee's “primary duties” will continue to be evaluated on a qualitative rather than a quantitative basis.
The Salary Test
California law requires that an exempt employee must also be paid a salary that is twice the minimum wage of a full time employee (the “Salary Test”). Under the Salary Test, California employees who make less than $41,600 annually cannot be exempt. The final rule from the DOL amends the Salary Test to allow employers to use nondiscretionary bonuses and incentive of payments (including commissions) to satisfy up to 10% of the new standard salary level. Based on current wage trends, the DOL projects the salary threshold will be $51,000 by January 2020. This compares to the current California annual salary test threshold of $41,600.
Automatic Updates to the Minimum Salary Levels
The Final Rule establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles, beginning on January 1, 2020. In other words, the minimum salary threshold will be set at the 40th percentile of full-time salaried workers in the lowest income Census region.
Leading California Employment Lawyers
Should you have questions about the Labor Department's Final Rule regarding overtime regulations and white collar exemptions, don't hesitate to contact leading California employment lawyers at Kingsley & Kingsley. Call and speak to an experienced California lawyer toll-free at (888) 500-8469 or click here to contact us via email.